Melissa Vergel De Dios - Head, IR Manny Pangilinan - Chairman and CEO Anabelle Lim-Chua - CFO Ariel Fermin - Head, Consumer Business Eric Alberto - Head, Enterprise Business Doy Vea - President, Voyager Joachim Horn - Chief Technology and Integration Officer Ray Espinosa - Head of Regulatory Affairs & Policies.

Rama Maruvada - Daiwa Arthur Pineda - Citi Varun Ahuja - JP Morgan.

Good afternoon and welcome to the PLDT Conference Call. This conference call is being recorded and the replay details are indicated in the conference call invitation posted in the Investor Relations section of the PLDT website. At this point I would like to turn you over to Ms. Vergel De Dios, Head of Investor Relations of PLDT, for the introductions.

Please go ahead. Thank you..

Good afternoon and thank you for joining us today to discuss the Company’s financial and operating results for the first quarter of 2016. As mentioned in the conference call invitation, a copy of today’s presentation is posted on our website.

For those who have not been able to do so, you may download the presentation from www.pldt.com, under the Investor Relations section. A podcast of this briefing will be available from our website after the call. For today’s presentation, we have with us Mr. Manny Pangilinan, Chairman and CEO; Ms. Anabelle Lim-Chua, Chief Financial Officer; Mr.

Ariel Fermin, Head of our Consumer Business; Mr. Eric Alberto, Head of our Enterprise Business; Mr. Doy Vea, President of Voyager; as well as other members of the PLDT management team. At this point, let me turn the floor over to Mr. Pangilinan for the presentation..

Well, thank you, Melissa, and good afternoon to all of you. Thank you for joining us for this first quarter 2016 presentation of our operating and financial results.

This afternoon we’d like to take a slightly different approach to our past presentations in the sense that we’d like to highlight, apart from dealing with the traditional presentation, especially of our legacy businesses, we’d like to highlight the various digital initiatives that have been undertaken by PLDT for the past few months or so, particularly in light of the significant growth of our data revenues this quarter, and as well, in terms of the network build out that has been undertaken since late last year, the improvements in the network, and including the ease of onboarding customers through the system, through these wireless systems, and the adoption and propagation of smartphones and the web connected devices at PLDT home, and the content that is developed internally or acquired externally by way of partnerships with the OTT.

After this preamble, I will be followed by Ariel Fermin, who heads our Consumer, and he will deal with the initiatives being undertaken by both PLDT home and the wireless side.

Then Ariel will be followed by Eric Alberto, who will deal with the enterprise side of the business, and then Doy Vea on the Voyager side, in particular PayMaya, progress being made on the PayMaya side, on the PayMaya vertical, and fin tech vertical, and finally, the financials by Anabelle.

So with that, Ariel, can you take over please?.

Good afternoon, everyone. I’m Ariel Fermin and I’d like to give you a brief update on the consumer business for PLDT Smart. If I could ask you kindly to look at sheet number one, oh, sheet number 4, sheet number 4. All right. It says there home quarter one headlines.

I did want to provide some context before going to the sheet per se, that nine months into forming the consumer business, pleased to inform you that we continue to deliver stellar performance in the home front, as we transform our business from just being landline broadband business into what’s called a smart home business, with digital services running on data, running on broadband.

And these would include services and products like the Telpad, the Fam Cam, TVolution, which cover areas like home monitoring systems, entertainment, OTT boxes, and all that, leading to connected home.

So we could see we delivered stellar growth for home and we are getting traction on the mobile as we put initiatives that will help it as well in this digital.

And three quarters of managing the business, overseeing both home and mobile, I reckoned that PLDT home has a slight headway in terms of getting into the digital transformation a bit earlier, and as we’ve again evolved from being a landline company to a smartphone company, and we felt that we could do the same for mobile, because obviously mobile was the more dynamic business between the two.

So, having learned this, now to do it from home gives us quite an advantage as we now try to move into the digital space for mobile. So let’s head on to the sheet which says home quarter one headlines. You’ll see there that the total revenue, the total revenue for home is at 10% for the first quarter of the year.

That is twice as much as our performance same period last year at 5%. So that was a very positive development, and again largely [technical difficulty] fiber, as we have been through the years. And we’ve, alongside that, we have offered the consumers very, very compelling packages for them to get into data.

There’s huge penetration already of data in the home space, and so the logical next step was to offer them digital services that run in broadband. That would be box number three. What you see there, an almost PHP700 million increase in digital services. That’s 66% versus same period last year.

So we should be on track to delivering something close to PHP2 billion, PHP2.5 billion on digital services for home this year. So that would be for home. If I could just direct you to sheet number 5. It says there mobile quarter one headlines. So we’d start off with ramped-up broadband growth.

What we’re seeing right now is, after a 22% growth last year, we’ve upped it to another 34% growth last year. Broadband here, in terms of product, we would be referring to pocket Wi-Fi that we have as a service. What we’ve done was to offer a product, a service that we call Big Bytes. It’s a data plan.

And we’ve put in iFlix, which is an SVOD service, and some really nice video content that really stimulate the broadband growth in the space. On the second box you will see twice as much mobile data growth at 38%. I do wish to inform you that we’re seeing very high conversion rates from the two campaigns that we’ve done quite recently.

The first one was a smartphone adoption. We sold an $18 smartphone beginning of this year, and we’re seeing that 91% of the ones who got those smartphones are very much into data. There’s a data inclusion as part of that smartphone package. And upon consumption of the data, we’re seeing that almost 70% of those same subscribers have topped up.

So this is very much in line with our ambition to really propagate data, and the first step we did was to put a smartphone in the hands of Filipino, entice them to use data with great content, and hopefully fall in love with it, which is what is happening right now, and for them to pay for it.

And therefore we commercially gained from that ecosystem as well. That’s one example on how we’ve grown mobile data to twice as much. And then the other example would be Free Basics, with Facebook. We used to call this Internet.org.

But then Free Basics right now, what we’re seeing is that 83%, of the ones who were in Free Basics eventually paid for their data, because then again they got hooked to Facebook and they obviously discovered the Internet, and that was a key component for us to have grown data as well.

You see the third box here that says Smart postpaid growing by 14%. It is the -- this is part of our strategy to grow this category. We felt that it was good business for us. Postpaid generally for us gives us good quality subscribers, very, very loyal subscribers.

And we obviously wanted to fortify as well our leadership in terms of subs base in this category. Okay. If I may lead you to the next sheet, my last sheet, so the question is, how do we do all these things, particularly in the last quarter? It comes with an internal change as well on how we do things. We’ve changed the way we do things.

And as we serve the consumers, it reflects. I think we’re a little bit more agile in how we craft our products and how we go to the market, a lot more creative in our value propositions.

And we felt that, with our breadth, with our scale, we had -- we were in the unique position to serve the consumer to provide that ecosystem that delivers the total digital experience for the consumer. So you have here, you have here in the sheet the various content that we have in our stable.

And all these contents are being enjoyed in and out of home. And I’ll just use -- say, choose two use cases to demonstrate this. Say, you see here, iFlix and Fox. You enjoy them at home and you enjoy them also in your mobile phone when you’re out of home. And we’ve innovated a lot, particularly in iFlix.

Because right now it’s being shown in a frictionless way, meaning no more signing on it, it’s a la YouTube, and you’d enjoy it. And you could sachet it, which is very, very helpful for a prepaid market as, for only PHP15 that’s around $0.30. You could enjoy three iFlix movies and you could it store it in your smartphone for a couple of days.

That’s the kind of engagement that we’re offering to the mainstream market. That’s one. The other piece here is would be, you will see here at the bottom of the page a device, looks like a robot, it is called a Fam Cam. It’s a home monitoring system. It’s the picture next to YouTube.

It’s a home monitoring system that we sell a whole lot of home, and it’s being bundled with mobile.

And what we’re offering here is for the subscriber to take a look at what’s happening at home while obviously we’re doing work and we’ve crafted the [indiscernible] the promise, into providing consumers entertainment, piece of mind and convenience wherever they are.

Now to bridge home, which we felt was gaining some headway into the digital space, with mobile, which is at this point trying to get some inroads, we felt that we had the pillars, we had the legs for this thing to happen, and I just want to share that with you as well. Single consumer view.

Single consumer view is one thing that we have between home and mobile. We felt if we had that, and we do, then we’d be able to target the consumers a little bit more surgically and offer upsells and cross sells. That’s one. The second one would be a seamless delivery of shared content.

That will be done through the network and the platform improvement that we’re doing. The third piece was that, if you had those products, you could bundle them and put them in one bill, positively offer the consumers the convenience of being with the PLDT and Smart group.

So in closing, for the consumer group, it’s been a good quarter one, in the sense that, again, for home business, we’ve, it’s the fifth year of growth for the home business, and the quality of growth has been pretty outstanding, because it has gone beyond access, it has gone to delivering digital services that run on data.

And then for the mobile piece, we felt that we’re getting some traction, with the initiatives that we’re putting in. So that’s it for the consumer business for PLDT and Smart, three pages..

All right. So, Mr. Eric Alberto who heads the Enterprise Business will present..

Good afternoon. Just to do a sound check, to make sure that you’re still there. I don’t want to repeat this.

Are they still there?.

They are..

Good afternoon. Eric Alberto, I head Enterprise Business for the PLDT Group, both PLDT and Smart. I would like to start my presentation by referring to sheet number 7. I just have one slide, to articulate the developments and progress at the enterprise space in the Group.

I’d like to start the presentation by saying that our enterprise mission is to be the premier digital enabler and trusted business partner for all enterprises in our markets, whether large or small and medium enterprise.

Our reinvestments in people, in datacenters, brick and mortar datacenters, our cloud and analytics platform investment, as well as our transformative efforts over the last four to five years, is now bearing fruit, as we see large companies offloading their IT and technology requirements to a trusted technology partner.

And we’re seeing SMEs also rapidly adopting technology at a means by which they could expand their market geographic reach as well as to be able to be competitive both locally and internationally, against other players in the enterprise space. In view of that, please refer to our performance in the first quarter.

The enterprise business grew at an encouraging over 10%, PHP710 million more from same period last year, at PHP7.55 billion from PHP6.85 billion. Driving that growth is 10% growth in both the fixed and ICT business, from PHP5.8 billion to PHP6.44 billion.

The fixed revenues were driven principally by our data business, which grew 15%, to offset our anticipated decline in our traditional voice services, which marginally declined by 3% over the period.

Our IT services, which include datacenter, collocation, disaster recovery, business continuity, as well as other enterprise solutions in hardware and software resellership, and implementation, as well as professional managed ICT services, surged by a whopping 30%, due to a pervasive mind-shaping and thought leadership program, as well as increased coverage of our customers both on the large corporate and on the SME side.

Our wireless business in the enterprise space is bucking the trend, with an increase of 15% or by PHP140 million over the first quarter. And our wireless revenues’ growth outperformed the market, with solutions business, including machine-to-machine driving such growth at 73%.

Our machine-to-machine business solutions actually cover to a large extent traditional mobility users on connectivity and business solutions such as connecting ATM, automatic teller machines, thousands of it, from the banking sector, as more and more banks put more money into the -- in e-banking.

But we also find a number of adoptions on machine-to-machine and mobility solutions in new digital companies such as in the transport business and in the travel and tourism business by enabling mobility, workload, private networks, and allowing these companies to book B2B2C engagements and customer bookings.

Just to round up my presentation, in the first quarter, I’d like to highlight a few activities, particularly centering on how we partner with the best-of-breed technology partners and providers in the world.

We have had NTT certify our datacenters as Next Centers, which is really one of the best certifications for both quality and security for datacenters. Amazon, we’ve engaged Amazon Web Services, AWS, as a consulting partner. In the same quarter, Microsoft had actually awarded us Gold Partner.

The Metro Ethernet Forum awarded PLDT as the best Asia Pacific Carrier for Enterprise Solutions Provider for High Bandwidth Ethernet Services, besting other carriers in the region. SAP awarded us as Top Partner for the Philippines on SAP Solutions. We also signed up with Akamai.

It’s Akamai solutions platform that is actually allowing enterprises to manage their bandwidth more efficiently as well as put enabling security cover on their websites and their bandwidth connectivity.

And we launched a very innovative vanity number service for enterprises called PLDT #MyNumber, which allows for companies to drive better sales, build and strengthen their brands, as well as enhance their customer experience.

As a last point, I mentioned earlier, a lot of our digital and technology ICT foray in the enterprise space actually demand that we solidify our market leadership through pervasive customer engagements and relationship programs.

As such we do at least 220 to 250 various customer events per month in the enterprise space, covering such active segments as the BPO market, the banking and financial institutions market, the real estate market, the transport market, healthcare, of course, the micro and small and medium enterprise space.

And last but not least, as the Philippines see a major election political activity next week where we elect a new President and a new set of government leaders, we see that e-government enablement will be a major source of incremental revenue for the enterprise space as new leaders actually embrace more digital solutions and embrace a leverage on technologies, and partner with us in their efforts to bring forth better public services.

That ends my presentation. Thank you..

This is Doy Vea of Voyager. As you are probably aware, Voyager is the digital innovations unit of the PLDT Group. We build platforms and solutions for emerging markets, catering to consumers, enterprise, Internet companies, banks, telcos, and other entities. We market in the Philippines as well as globally.

In the Philippines, our solutions find their way into PLDT Smart offerings. But we also have OTT play in the Philippines and outside. Just to put a dimension to our operations. We had revenues last year of PHP1.3 billion and are targeting PHP1.8 billion this year.

As a factory, we built innovations from ideation to incubation, acceleration, go-to market, eventually spinning off companies. What I’d like to do today is highlight two companies that we have spun off, PayMaya and FINTQ, and some of the products under their respective [technical difficulty].

First of all, on the PayMaya side, we have three businesses here. We have the PayMaya [technical difficulty] PayMaya business, which is about online and mobile payments processing.

First, on the on the PayMaya issuing, the prepaid mobile wallet, we can see a lot of traction on this product, not only in terms of volume and other metrics but as well as acceptance in the market. First of all, acceptance is high in social media.

We are, from the time we launched, we have been the number one financial app in terms of download on Google Play. We are also, in Facebook, we also score a high 3.5 points versus the normal 1.0 benchmark. So, high engagement in social media. As a result, user growth has grown 79% Q on Quarter and we have very active users.

Our users use the card or the account 35%, 35% of them are active, versus the normal 15% by credit card standards. So, what do our users do? Where do they use the card? It’s primarily for online purchases. 65%, the 65% usage online of our service versus the usual 35% of credit cards.

What sites do they go to? They buy from iTunes, Spotify, PayPal, Netflix, Philippine Airlines, Cebu Pacific, Uber, Steam, Google Play, and the like. Our online usage is 65% versus 35% of the usual credit card experience. We are capturing a key market segment in PayMaya, 65% of our PayMaya base are ages 18 to 34 years old, so the millennial segment.

So that’s PayMaya issue. On PayMaya business, which is the acquiring side of our payments business, we cover merchants that account for 80% of all online purchases in the Philippines. We cannot mention all but let me just cite two examples. It’s Philippine Airlines and BayadCenter, which is the Meralco payment centers.

We’re not at liberty to disclose the others. But they cover 80% of all online purchases. On Padala, which is our domestic remittance business, last year we did PHP86 billion in throughput, and that is tracking well this year as well. We are the biggest network not only in terms of throughput but also in terms of infrastructure.

We have 15,000 money in, money out centers, or cash-in/cash-out centers. But I think the more relevant figure is 98,000, which represents the number of accounts that are doing wallet to wallet transfers in our PayMaya and SmartMoney base. We cover a lot of ground in the country.

We are the most present in remote, in the remotest municipalities, including third to fifth class municipalities. So we are also sought after by our competitors for the last-mile delivery in these very remote areas. So that’s PayMaya. Let me now go to FINTQ.

Our FINTQ has a different flavor from the usual first-world FINTQ where P2P normally disrupts the legacy bank and finance infrastructure. In our case, we look at ourselves as an enabler and not a disruptor of the financial institutions. Our products are OTT in general. So we are bank-agnostic and we are telco-agnostic as well.

So what do we have under FINTQ? Our most advanced product in FINTQ is Mobile Loan Saver. It’s a platform and it’s offered as a platform as a service. Right now we have the Landbank of the Philippines, which is the fourth or fifth largest bank here, the government, it’s the government bank.

Soon it will be the second with the prospective merger with the Development Bank of the Philippines. We are doing salary loans. We’re enabling the salary loan program of Landbank. So, based on the numbers, we are now helping Landbank generate seven times their normal velocity prior to us being their partner.

So they’re now doing seven times more loans than before. They’re also booking loans outside of office hours, 23% are applied for and approved outside of office hours. 60% are outside Metro Manila. And by May they’ll be open to Globe subscribers as well.

They’re now already open to private borrowers and soon will be open to farmers, fishers, overseas Filipinos and micro SMEs. I guess what we’re saying here is we have helped the bank enlarge their catch basin and be more efficient as far as delivery of credit is concerned. Next one is Lendr. Lendr is a marketplace of consumer loans.

So the important thing with Lendr, it just recently launched. The important thing is that it has attracted most of the banks into participating in the marketplace. We have two banks that are already operating, just recently, several days ago, starting. We have 25 signed up, onboard ready for launch.

We have signed up with 499 Rural Bankers Association of the Philippines members and 54 Chamber of Thrift Banks members. Lendr is a, we believe, going to be another very compelling product not only for consumers but for the lending community as well. We also have LockByMobile.

LockByMobile, I think this has been discussed before with you, but just to refresh, it’s the first mobile-based anti-fraud security and card control for credit cards, ATM cards, debit cards, and we are on our way to fully integrating with Visa. Visa, once that happens we will be offered to Visa’s 25,000 member banks globally.

We already have one bank in the Philippines, and that’s Union Bank, going live in May, this month, and another regional bank in -- present in two markets that will soon launch LockByMobile as well. LockByMobile is approved under the strict standards of the PCIDSS for the association of credit cards. We have other products, like Pera Agad.

Pera Agad is a microcredit lending service. We service -- we will, when we launch next June, we will be servicing loans in the amount of PHP2,000 up to PHP5,000, small loans, in partnership with a Bulgarian company that will take the credit risk, based on algorithm and credit scoring.

So the loans will be available for consumers as well as the -- as well as the retailers, primarily Smart retailers. Rove is a government-to-person cash distribution system.

It is now supporting the Conditional Cash Transfer program of the government, accounting for something like 56% of all disbursements, as well as enabling humanitarian agencies in dispensing dole outs during disasters.

We are completing the production of the platform that will enable the International Red Cross as well as Oxfam to apply the same platform in other countries.

The last one is a micro-insurance, micro-savings programs that we have tied up with Sun Life, the biggest life insurance company in the Philippines and also Landbank of the Philippines and Department of Education.

This is a path breaking program that forms part of the inclusion initiatives of Sun Life as well as the Central Bank of the Philippines here and the Landbank. So we have other services in our pipeline, but just to give you a flavor, this is what we have for the moment..

Thank you, Doy.

Shall we proceed with the financials?.

Thank you, sir. If you look at page 10 in your presentation slides, that slide recaps the key highlights for our first quarter 2016 results, with revenues increasing by 1% year-on-year , EBITDA at PHP16.6 billion or 41% margin, and core income at PHP7.2 billion, which is in line with our guidance for the year of PHP28 billion.

The slide following that will give you more details on the composition of this number. So, turning to the next slide. Our service revenues, if you take out the ILD and NLD, grew at a step-up of 3% year on year, some PHP35.3 billion a year ago to PHP36.2 billion in the first quarter.

If you look at how the data composition of these revenues, our data mix has increased in the light of an increasing revenue base so, from 32% to 38% of the higher number.

At the bottom-right side of the chart, the fixed line, quarter-on-quarter performance has been quite impressive, with consistent sequential growth per quarter of 2% to 3% per quarter, leading to a 10% year-on-year increase.

In the case of our wireless business, the revenues have pretty much stayed around the PHP25b level per quarter, with a bit of step down in the first quarter from a seasonal which will be the fourth quarter.

In the case of the fixed line, you see also that the data composition of the revenues is already about two thirds of the total, whereas in the wireless case only about 25% of our revenues are attributed to data and the bigger proportion coming from SMS and voice.

Now if you look at the next slide, this represents our revenues, together with the impact of ILD and NLD. So, taken together, the total revenues increased by about PHP100 million year on year. The increase from the data broadband and digital platforms was able to cushion the effect of the declines in SMS, mobile voice and ILD,NLD.

Over a third of our revenues are now coming from data and broadband and, at an overall basis. But in the case of the fixed line, it’s almost 60% coming from data, and in the case of wireless, about a quarter of our revenue.

We also show our revenues by business units, and in this case you see that two thirds of our revenues is accounted for by the consumer segment, which Ariel presented on earlier, and that’s a combination of our PLDT home business and our Smart Sun mobile individual business. So it’s a 1% increase year on year for our consumer business.

Enterprise would be the next largest business here, close to 20% of our revenues come from the enterprise group. And enterprise reported a very healthy 10% year on year. Voyager, which Mr.

Vea presented earlier, starting to register good revenues at about PHP110 million, still exclude the revenues also contributed by PayMaya, which is another PHP260 million for the first quarter. So, all our businesses have been combining data connectivity in the growth array of services to deliver these growth numbers.

If you turn to the next slide, we further show you how the growth in the consumer and enterprise businesses have developed over this period. So in the case of consumer, while overall it’s a 1% increase year on year, if you break it down really, there’s a 22% increase actually in the data composition of this revenue mix.

It’s just that SMS and voice have been under some pressure such as on overall basis you see a 1% increase. But data alone is growing by a healthy clip of 22%.

So in the case of enterprise business, we also see that it’s principally driven by data in terms of the growth as the enterprise business has been able to combine connectivity and enterprise digital revenue to deliver a 10% increase year on year. The next slide shows the quarterly development of the revenues for both consumer and enterprise units.

And again it demonstrates how the efforts to drive data revenues have contributed to quarterly improvements in both consumer and enterprise business over this period. Now, where does the data growth comes from? So that’s in the next slide. You’ll see that we break it down by mobile Internet, corporate data, fixed and wireless broadband.

And across the board, all these revenue streams have registered double digit year on year increases. So, taken as a whole, it’s an increase of 22%, which is double the rate of increase prior year. Mobile Internet in particular grew at 38% versus 19% last year. Our Smartphone adoption has now rose to 45% from about 30% at the start of last year.

And obviously that has contributed to the increase in mobile Internet revenues. Fixed broadband is the largest contributor in terms of its basic revenue streams. And our fixed broadband business continues to grow on the back of a stronger performance across the home business as people take on more and more digital services for their phones.

Corporate data has also been growing, helped by various efforts on the digital enterprise revenue front as well as improving less capacity four our data centers. And wireless broadband is the fourth element of this data business that has shown good growth last year.

Now turning onto the next slide we thought we’d step back a bit in history and take a look at what happened with our fixed line business over the past few years.

As you probably appreciated, we said that in the case of our fixed line business, which is growing at a healthy clip this year, we’ve seen that transition or shift to data that started much earlier for the fixed line business, which actually happened way back in the early 2000’s.

And then, so the tipping point came in about 2011,2012 when the fixed line business started on its current growth path, rising at a steady growth of both consumer and enterprise data and broadband which then crossed the 50% mark in the share of total revenues by about 2013. So a similar transition process is underway in our wireless business.

It’s likely to be more rapid because of the fast growing digital ecosystem we are seeing in the mobile space. But the goal is to achieve the same critical mass in the wireless coming from data [indiscernible]. Now I guess that number is where we would like to deliver a better growth in terms of the overall business.

So our fixed line business has grown 8%, wireless is under pressure. We hope to see that as the data composition goes higher in the wireless business that we will be able to see a return to positive growth for the wireless business as well.

Now moving onto the next slide which is the EBITDA slide, and as we have reported a slight increase in service revenues, there has been some decline in EBITDA driven by higher subsidies to support the smartphone drive in our business to grow the mobile Internet and broadband businesses, a bit of an increase in our cash OpEx as well as some additional provisions that we had to book particularly with respect to our Sun postpaid business which underwent a migration in billing systems this year and there was a bit of a catch up in terms of provisions that we had to cover in the first quarter of the year.

Looking at the first quarter EBITDA it’s still at about 3% increase versus fourth quarter last year. But we will continue to track the EBITDA over the next quarters as our guidance has been that we would like to keep the PHP70 billion or flattish EBITDA for the year.

But at this point the higher subsidies have stunted a bit the EIBTDA number for the first quarter. Now at the core income level again this is on track versus guidance, we said that we would expect core income to be lower given the higher financing costs, higher depreciation expenses that we will see to our numbers this year.

So the PHP7.2 billion in the first quarter is in line with our guidance for the year. On a reported income basis we had to book additional impairment charges with respect to our investment in Rocket.

As you may recall, the Rocket share price was up €28 at the end of the year but it had closed at €24.6 per share at the end of March, we had to book another PHP1.6 billion of assets impairment. The Rocket share price has been quite volatile since then.

It enjoyed an upswing at the early part of April post the sale of its holding in Lazada to Alibaba so the share price rose to a high of €29. But there has been again more recent news flow which affected the valuation of the Global Fashion Group of the Rocket portfolio investment.

And as a result of that because the indicative valuation for the GFG Group is lower than what we had last reflected. There’s also been a hit in the share price to about €20, €21 of late. So we’ll have to monitor this in the next months.

The asset impairment charge of PHP1.6 billion was to some degree offset by a ForEx gain of about PHP0.5 billion in the quarter, such that there’s a net PHP1 billion difference in terms of the reported numbers versus the core in some businesses.

The next slide it shows our CapEx number, we were off to a good start in terms of the CapEx programs given that a lot of the plans had been made out since last year. So we had PHP14.6 billion CapEx record high number in the first quarter relative to about PHP3 billion prior year.

Now the CapEx programs we have described to many of you in the recent past has involved a lot of programs around expansion of our 3G coverage and capacity, the build out as well of 4G and even LTE-Advanced.

The full integration of Smart and Sun networks is targeted to be achieved by the middle of the year and this will improve coverage for both Smart and Sun subscribers. We are adding fiber capacity all over to deal with the higher data traffic growth as well as to fortify our network resiliency and redundancy.

And we continue to expand as well our international connectivity. So we are, in terms of our guidance, we -- our CapEx guidance for the year remains at PHP43 billion. Now how have we been funding the CapEx build-out? There’s some increase in our net debt as a result of higher CapEx investment.

It’s at PHP2.5 billion at the end of March at 1.68 times net debt to EBITDA. We would hope to manage this at not more than 2 times during the year. Our debt has also been shifted more and more into a local currency basis, such that only about 13% of our debt now is un-hedged.

And we’ve been able to do that and keep our cost of debt at 4.3% notwithstanding the greater proportion now of peso debt financing.

We have an upcoming maturity in terms of the 2017 bond that matured in March, and we would be in a position to refinance this mostly in pesos and to the bank market, so there is no intention to go outside into the public market for a new bond issue. So with that I turn it over to Mr. Pangilinan for the closing remarks..

Thank you, Anabelle. This is really the last chart it involves the guidance for 2016. We affirm the core income guidance at PHP28 billion. As Anabelle mentioned, the first quarter results indicate that we would be able to meet the core income guidance of at least PHP28 billion for the full year 2016.

CapEx we are keeping at a global number of PHP43 billion for 2016 despite higher CapEx spend for the first quarter of PHP14.6 billion. Dividend is likely to be at 75% of core EPS. On the EBITDA slightly concerning because it was PHP16.6 billion for the first quarter, we should be at PHP17 billion or slightly above PHP17 billion per quarter.

That’s mainly on account of the subsidies realized for the first quarter, certain provisions on the Sun postpaid.

So we will have to, if we are able, if we are going to keep to the subsidy level of about PHP1.2 billion on the wireless side for the balance of the year we will have to look at other areas in our OpEx lines to reduce in order to be able to meet our EBITDA target of PHP70 billion for the full year 2016..

We are now ready to take your questions, operator..

Our first question comes from Rama. Your line is now open..

Hi, good afternoon. Three questions from me please. Firstly with regards to the wireless division, could you provide some color on the asset impairment charges you have booked here PHP1.3 billion in provisions and this seems to be rising.

Is this related to postpaid segment, or what is actually driving these provision levels, some color there would be good. Associated with this is the peso 888 plan, your subsidies have obviously increased in the first quarter so would like some guidance on how you expect this to trend going forward.

And more importantly whether or not you think the 888 plan is actually working in the way you think it should be. Final one has to do with your fixed line revenues the legacy revenues. You saw a pretty healthy revenue growth there of about 5%. Wondering what is driving that. Thank you..

Let me respond first for the 888 plan, it’s doing very well we launched in January 3. It’s an $18 phone. And so far we have 320,000 active subscribers with more to come in the next. in balance of the quarter.

Based on analytics I mentioned earlier there’s a high engagement rate amongst the subscribers as 91% of them are using the data which was part of the package that goes with the phone. That’s 100mb of data. And then, which wasn’t enough to begin with. And then after using 100mb of data we see that 70% of them were buying data top up.

So it’s a healthy model for us because we’ve been able to achieve what we set ourselves to do. Number one, get a phone in the hands of the Filipino; number two, get him into the Internet with an inclusion, reasonable inclusion of 100mb per month; and umber three, have him top up because he’s just into the Internet at that point already.

What we are seeing is that again based on analytics, a good part of the ones who subscribe to the 888 plan were students, were students who may not have the financial capability prior to our offering the 888 to getting a Smartphone so most of them were in feature phones.

So I think strategically, operationally and commercially this plan is doing what it had set itself to do. So those are the highlights of the 888 plan..

In terms of the asset impairment for the wireless business, that’s a combination of provisions for bad debt and inventory provision. As I explained a bit earlier there’s a bit of catch up provision for the Sun postpaid business as we had migrated from a previous billing system to a new billing system.

So there’s about PHP0.5 billion of catch up provision in the first quarter number for bad debt and inventory provision, which is the, yes, which is a one-time not likely to..

That’s a one off phenomenon for the first quarter. In terms of the subsidies I think the way it’s looking like considering the growth in data revenues -- on both sides of the business, on fixed and wireless, it’s likely that we will maintain the level of subsidy at around PHP1.2 billion per quarter.

So succeeding quarters will not see these provisions that we saw in the first quarter this year, but we might still fall short a bit, we’ll probably have to look -- we are likely to look at other areas of our OpEx to be able to achieve the PHP70 billion EBITDA target for the full year 2016..

I think your third question, Rama, related to the growth in the fixed line revenues. It’s at actually 8% increase year-on-year and that is driven principally by data growing by 13%, so PHP1.1 billion of the PHP1.2 billion increase is really coming from our data and broadband revenue stream.

In the case of the fixed line business the impact of ILD and NLD is down to only about PHP100 million in terms of a decline, so it’s really the data growth feeding through the overall fixed line revenue movement..

Actually, Anabelle, my question is with regards to local exchange revenue on fixed line side where the revenue growth rate is 4%, your fixed line customer base has upped by 5% so I’m just wondering what exactly is going on in the segment?.

We’ve been able to maintain our -- and slightly increase upward our fixed line subsidy --. Okay, Ariel can take this..

Yes. Okay for the consumer -- okay, the total fixed line revenue grew by 4% local exchange, yes, for the quarter. And this is really a function of the increasing subscriber base for the two units, consumer and enterprise in this case. Eric can speak for the enterprise piece.

For the consumer space business what we have continuously done was to bundle landline with data, so as data grows is expected to grow, it carries along landline as well..

On the enterprise space we continue to market vigorously to the micro, small and medium enterprise space, and typically the bandwidth -- the broadband and Internet connections that the [indiscernible] carries with it also voice facilities to the extent of the larger SME players even [indiscernible] a new generation of simple ITT ADX.

The [indiscernible] business in the enterprise business actually gone up as recorded. Only the first quarter we had a one-time sale last year of hardware equipment relating to [pay ADX] systems to the enterprise space which was not replicated this year, that’s a one-off.

But if you take network out and you look at the LEC business voice business, voice is still very much relevant and growing in the enterprise space..

Thank you our next question comes from Arthur Pineda. Your line is now open. You may proceed..

Hi, thanks for the opportunity. Three questions from me, firstly with regard to the subsidies what’s pushing you to engage in such level of subsidies? Is this being borne by competition in the market, didn’t really seem to really push your postpaid net adds in the first quarter. Second question I had is with regard to the backend of the business.

Outside of the networks which are -- you’re obviously addressing with your increased CapEx, what else do you think needs to be addressed to stabilize the mobile business on the backend? Third question I have is with regard to the regulations.

Are there any updates on the regulatory front with regard to releasing some of the spectrum held by San Miguel? Thank you..

All right, thank you for that question. This is Ariel. Let me respond to your first question on subsidy. Do we start with a strategic intent for the group to grow data? And for us growing data is -- we recognize of course to do that we require an ecosystem that works together, and our Chairman has already outlined this as well in his preamble.

We need to have the following factors on the same page. Number one a better network, a device, a device, a smartphone in the hands of every Filipino, content that drives usage and of course the ability to monetize it.

Our smartphone campaign 888 follows three models where we’ve put a device in the hands of the consumer who would not have enjoyed the Internet prior to us doing this because it’s just an $18 smartphone, so now he’s in a position to enjoy it. Put 100mb per month and try Facebook, most likely trying Facebook and then after that topping up.

So, yes, it starts with the intent to grow data and the numbers would suggest, as Anabelle mentioned earlier that data was just driving so much growth for the group, which is of course the huge amount of smartphone. [Multiple speakers].

Okay, I will answer the second question. This is Joachim Horn. Besides the network so a very holistic approach we have been taking in order to prepare ourselves for the digital keyboard. It starts basically to come up with [indiscernible] processes and it crosses service platforms, the IT environment and the network.

And it’s being complemented by a lot of innovations which are coming from different sources. All of that together basically describes the required changes or required notifications we need in order to get this in the digital era of the PLDT Smartphone..

Are there any milestones that we should be looking at in terms of these?.

Say again?.

Milestones..

I think you should just watch our launches which are coming up pretty soon during this year. We have not done, said we’ll do a three year plan without any intermediate steps. When we started to plan on that we always said we need to have quarter by quarter visible improvements, which we have seen and just keep posted.

I think you will see more improvement coming in all these areas..

On the regulatory front, this is Ray Espinosa, there have been no updates from the FTT regarding the future of [indiscernible] growth..

I think he had a question the postpaid, that’s right?.

Yes. When you look at the postpaid [indiscernible]..

There has been a decline on the postpaid for the quarter of around 31,000 but that’s because there was a cleanup of the Sun postpaid sub base to the extent of 168,000. So if you take that out there’s actually a gain on the postpaid side.

In terms of the total subs net adds for the quarter there was a decline of 410,000, but that includes the 168,000 of Sun. So the actual decline in sub base was only about 240,000 which is much less than what was realized last year. For the full year it was around 5m subs that we lost.

And I think for April our latest count is that there has been a positive increase in the subsidy cellar and broadband for the wireless division which we haven’t seen for a number of years. So for the, of course one month doesn’t make a full year right, but at least for April we have a positive gain in net adds for the cellular broadband subs.

So in a way I think the subsidies are helping out both the subscriber count and the data revenues, which have grown significantly for the first quarter..

I also want to add perspective on the postpaid business of Smart that it really is a strategic intent for us to grow this not only because it is part of our agenda to grow data and postpaid people consume data, but also because it is closer to where our PLDT home subscribers are.

The more postpaid subscribers we have for mobile, what we are seeing is that there is greater convergence that we have with PLDT home because they come from the same, generally come from the same pool and there is a whole lot of possibilities if we had them both in postpaid point one.

Number two was that generally as we see in home and as we see in mobile also, postpaid subscribers are good subscribers, they’re loyal and they stick with us for a while and they’re higher ARPU. So it’s really a good business to be in.

And when you look at what we’ve done, I should go back to 888 and all the things that we do with the other partners, there is a huge part of prepaid, they’re higher value prepaid subscribers who can go to postpaid at this point.

So we are very just thorough and granular in the way we do things that are, like as I described higher value, prepaid subscribers going postpaid. that was something that was key for us..

Understood.

Sorry, if I could just have one follow up question there, are there any specific initiatives for PLDT to actually better capitalize the fixed line business to help drive your mobile arm?.

Oh, yes, definitely, definitely. We’ve been doing it already since late last year. For one we’ve done quad-play. We’re I think one of a handful of carriers around the world who are doing quad play.

That would be [indiscernible], your broadband, fixed broad, your mobile and of course your video now which are the signal over fiber that we are doing, so that’s one piece. The second piece was that, the second piece is that since as I’ve mentioned earlier, we have a single customer view.

So, we [indiscernible] and cross-sell our postpaid mobile services to a good paying, high-value PLDT subscriber. Now we are talking 1.5 million PLDT subscribers that we could potentially put postpaid mobile plans to.

And that’s exactly what I’m saying that it’s not a bad thing to have a postpaid momentum because it just opens up a lot of things with PLDT which is double point convergent from Virgin and which is double point I think of having a consumer group that’s why we look at this business and the consumer as one.

And therefore we are going to providing him the entire suite of services in this case, so it’s an opportunity for us..

Eric Alberto again, on the enterprise space albeit it usually takes a larger portion of the largest business but we have been pursuing convergence for both the fixed and wireless business for the enterprises for quite some time now.

And our value proposition really is not price but really compelling value and contribution relevant to the enterprise business and how we use our -- not only our connectivity but our solutions to enable their businesses. Our postpaid business in the enterprise space has grown steadily.

It’s not -- we have actually leveraged our leadership in the fixed space.

These relationships that we have on the fixed space that makes sense to our being able to cross and up-sell wireless services, not only in terms of basic POP and messaging capabilities but in a growing way as corporate -- as they adopt more mobile in the way they enable their businesses, we are actually leveraging on enterprise solutions being delivered as well on the mobile platform.

Our enterprise partners, as I mentioned earlier, is growing very, very healthily double-digit up 15% on first quarter. And we are optimistic that with further convergence of our offerings mixing across platforms on fixed and wireless that this growth pace should be healthy in the continuing periods..

I think in a way the convergence of fixed and wireless offerings is a unique proposition, value proposition from PLDT. And you see that reflected back to the profit mix of the first quarter. Approximately 65% of our core income was derived from the wireless side and 35% from the fixed.

So the value, the contribution of fixed line to the overall business both in revenue terms and profit terms are increasing and I think will do so for the next two or three years until the wireless business is able to gain real traction on the data side of this business..

Our next question comes from Michael Benson. [Ph] Your line is now open..

Thank you for the call. My question was regarding mobile. I think someone already asked the question on the Smart 888 promo. I think the numbers are quite good. Is it fair to say given the traction you’re seeing that you’ll maintain this promo for the foreseeable future? That’s it thank you..

I think it’s fair to say that we will continue with the promo but we will -- and we will have to refresh it with a better phone, with more features, [indiscernible] I think right it’s something that excites us something that markets [indiscernible] and it’s something that adds a lot of value to this market. So, yes, so everyone is good on that one..

Our next question comes from Varun Ahuja. Your line is now open..

Yes, thank you very much. I’ve got three questions.

First, can you provide any update on the network modernization that you’ve been doing? What state is it in? How much has been completed? Secondly on depreciation and amortization, can you provide some color on that because I believe you had guided for a flat depreciation and amortization and if you look at first quarter, and if you do analyze that it looks a lower run rate.

So it will be helpful if you can provide color. Third on the tax rate, it looks pretty high at 30%. Can you provide more color what should we look at full year tax rate? Thank you..

I will start with network modernization. We are making good progress. We have started with increasing the rollout for 3G already last year. We have complemented it now with 4G. We have closed the gap to competition with 3G by and large already last year.

And we plan to close the gap this year with a -- we will have 3G LTE coverage -- throughout the metros 3G coverage is almost matching the 2G coverage soon so that’s good progress.

At the same, time we have heavily invested in increasing capacity to remove the bottlenecks, which slow down the [indiscernible] starting from the international traffic through the fiber backhaul we have and backhaul to the base station.

So, substantially, we can see that the average Internet speed is actually increasing also what external benchmarks are showing. So, there we are full on track. We are not satisfied with what we have achieved. We will continue to push.

We will, based on the merge of the two networks done in Smart, we will achieve significant coverage improvements in the two metros in Cebu and [indiscernible]. During this year, we will also get indoor coverage, we have focused area for indoor coverage particularly in the metros. We will push speed higher.

We just launched the LTE Advanced very successfully in [indiscernible], we are looking for a further rollout of that technology to make it more meaningful. And at the same time we are pushing also on the fixed side the rollout of fiber to the home which we have done the last years and we continue to do that as the demand is very strong.

We also upgrade our DSL areas with higher speeds and more capacity to meet the rising demands of our customers. So all in all I would say we are on track by no means finished but we are quite positive about the next quarters. We will see significant improvements coming in through this year..

If I understood correctly your second question it was around depreciation expense. I think we’ve given guidance that our depreciation expense will be higher. Combined with our higher financing cost it’s about the PHP2 billion sort of downward impact on the core income for the year.

And then in terms of the tax rate we expect that the tax rate will be lower than the 30% rate as we review this for the balance of the year. There is still some unrecognized tax benefits that we can take advantage of, and we expect to be able to achieve a lower tax rate which will be coming probably around the 20% level for the year..

Thanks.

Just a clarification on depreciation and amortization, so in 2015 you had around PHP32.6 billion of depreciation so you’re saying it should be higher than that in 2016?.

Yes, because our CapEx is running at PHP43 billion for last year and this year so that will come through and hit us with higher depreciation as projects are completed..

So it will be more in second half loaded, because the first quarter looks pretty low compared with the full year?.

Yes, that’s correct..

Okay. And one more question I just wanted to check, given Globe is trying to be getting much more aggressive on fixed line side, they have big plans for the fiber business.

So on the ground are you seeing much more competitive Globe? What’s the situation in fixed line side from Globe in terms of competition?.

I’ll take the one on the enterprise side first, well, we have heard news indeed that they’ve become aggressive on the transport and connectivity side and that’s on the laying out of more fiber footprint.

What we are trying to do in the enterprise space is really going a step beyond just connectivity and the networks by providing real compelling value in driving technology and digital [indiscernible] solutions that are actually, positions us as a trusted network partner for enterprises that they more and more they’ve got the cloud and they do more offloading of non core business, IT and technology elements in their companies and offload that to a trusted network partner.

And that’s how we differentiate ourselves and how we continue to differentiate ourselves from competition both local and foreign.

From the consumer standpoint I think we’ve had the benefit of having the fiber optic cables 100,000 kilometers laid down, and obviously we are [indiscernible] that and there’s no let up as Joachim had mentioned earlier. The key strategy for us is to go beyond assets and it’s position about putting a line even assets to data.

It was about having [indiscernible] evolution, signal and fiber sold and entering the most number of homes because, and that’s happening already.

And what that means is that the proposition is clear and the consumers appreciate the value that we bring in, not only in the context again of just bringing data but really putting in digital services and that makes us more relevant to the consumer. So we will continue to press on and the strategy remains push additional services along with data..

But I think as well in the meantime we are quite aggressive on the rollout of fiber..

Our rollout has increased significantly over the last one and half two years. That’s not because Globe has announced but because we see the market opportunity and we will continue to push there as we will also upgrade the existing connectivity in order to meet the new demand.

Just one word to Globe’s investment, I think a big part of that investment will go into fixed in BayanTel, Globe was very vocal about that BayanTel was not in a good shape and I guess that a big part of the investment, years at least will go into that area..

Operator, are there any more questions?.

As of the moment we don’t have any questions on queue..

Okay, if there are no more questions we would like to advise that the instant replay for today’s call will be available starting today through May 10. The instant replay details are contained in the conference call invitation. We now turn the call back to Mr. Pangilinan for any closing remarks..

Well, on behalf of all of us here we’d like to thank every one of you for joining us for the call this afternoon, and we look forward to engaging you in further conversation when we report our first half results sometime in August. Good afternoon to all of you. Thank you..

Thank you and that concludes today’s conference. Thank you for your participation. You may disconnect your line in your own time..